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How a prenup may help business owners in divorce

On Behalf of | Jul 30, 2019 | Complex Divorce & Property Division |

Business owners in California may want to consider a prenuptial agreement to protect their company. A prenup can establish the value of the business at the time of the marriage to help ensure that only value gained during the marriage is subject to division in case of a divorce.

However, the prenup can determine how the business is divided as well. For example, if the spouse works for the company but is paid at market rates, that spouse may have less claim to a share of the business. If one spouse will stay home and raise the children, couples may want to consider how this contribution will be valued. Another consideration for the prenup is how the business will be valued. Valuation by a third party can be expensive, disruptive and time-consuming, and agreeing on a way to assess what the company is worth in some other manner could help prevent this.

The prenup might also specify how the income of the business owner will be handled. Some owners might put more money back into the business rather than taking a larger salary, but this could mean fewer marital assets to divide. Some couples may want to specify what percentage of the business the spouse will be entitled to in case of divorce. Even if other property is divided 50/50, this can differ.

Whether or not a person is a business owner, a prenup may be particularly important in a community property state like California where all marital property is supposed to be divided equally. However, it is important that a prenup is prepared correctly or it could be challenged during the divorce process. For example, a judge might dismiss a prenup if one party did not get adequate legal counsel or seemed to have been coerced into signing.